Presently, companies use insurance policies as long term assets to insure against various forms of future liabilities including pre and post retirement employee benefits. There is a problem in that a change in the taxation of some insurance policies will give rise to additional tax expenses that are in fact accruable under current accounting rules for public companies. Additionally, individuals purchase insurance to protect against the financial impact of future uncertain events. Should the insurance proceeds be taxed or treated differently than originally planned, an individual would incur a shortfall relative to his/her original needs.
Until recently one of the primary features of life insurance has been that death benefits under a policy received by an individual policyholder's estate, or by an entity, are tax free. Another tax-advantaged feature of life insurance is that the inside build-up of the life insurance policy is tax-deferred. Thus, the gain on the investment in the life insurance policy, known as the inside build-up, is tax deferred until the investment is paid out, except upon death when it is paid out free from income tax in most situations.
Corporations generally buy life insurance to take advantage of these two tax-saving features. They often use these life insurance policies to fund long term liabilities and expenses. Another example where companies use the tax benefits of life insurance is to fund future pension obligations.
The same benefits for corporations also extend to the individual insurance customer.
Recently, the tax status of death benefits and inside build-up have been the subject of challenge with proposed legislation that's moved through various stages of Congress. A change in the tax laws would dramatically reduce the certainty that companies and individuals have come to rely upon. Therefore, there exists a need for a product as well as a system for managing that product and a method for implementing the product which makes the client agnostic with respect to future tax law changes in regards to death benefits or the inside buildup within the policy or with regard to other tax advantaged aspects of insurance policies of all types.